Investors Said to Seek $11 Billion Valuation for MegaFon

MegaFon, controlled by Russia’s richest man, Alisher Usmanov, and partially owned by Sweden’s TeliaSonera AB, should trade at a fair value of between about $12 billion and $16 billion, analysts at banks involved in the IPO said in notes to investors. Photographer: Alexander Zemlianichenko Jr./Bloomberg

Oct. 16 (Bloomberg) -- Investors considering the planned
initial share sale of OAO MegaFon have asked for valuations of
between $10 billion and $11 billion for Russia’s second-largest
mobile-phone operator, people familiar with the plans said.

The company would find more than enough demand at $10
billion, a discount to listed peer Mobile Telesystems OJSC at
the implied valuations, said two of the people, who asked not to
be named because they were not authorized to speak to the media.

MegaFon, controlled by Russia’s richest man, Alisher
Usmanov, and partially owned by Sweden’s TeliaSonera AB, should
trade at a fair value of between about $12 billion and $16
billion, analysts at banks involved in the IPO said in notes to
investors. Direct Line Insurance Group Plc also priced its IPO
at a discount to the initial trading estimates for the company.

“We think the MegaFon story, if valued attractively, may
attract investor interest as an alternative to listed Russian
telcos,” analysts led by Alexander Kazbegi at Renaissance
Capital Holdings Ltd. said in an Oct. 10 note to clients.

Russian companies are returning to stock offerings after
the central bank sold a $5.2 billion stake in Sberbank last
month. MD Medical Group Investments Plc, Russia’s largest chain
of maternity centers, raised $311 million in a London IPO last
week. The billionaire Ananiev brothers’ OAO Promsvyazbank had
sought to raise as much as $414 million in a London sale before
postponing the deal yesterday, saying pricing indications didn’t
reflect the company’s value.

Euroset Deal

An official at Moscow-based MegaFon declined to comment on
the IPO valuation.

MegaFon said yesterday it agreed to buy a 25 percent stake
of handset retailer Euroset Holding NV, and secured an option to
acquire another 25 percent from Usmanov as soon as one year from
now. The 50 percent holding is valued at $1.33 billion, the
company said. VimpelCom Ltd. will continue to own the remaining
50 percent stake.

MegaFon this month announced plans to push ahead with a
share sale in which TeliaSonera will reduce its stake, with
MegaFon also selling its own stock. It may offer investors as
much as 20 percent of its shares, including 10.6 percent from
TeliaSonera’s stake and 9.4 percent held by a MegaFon unit,
according to a shareholder agreement reached in April when
billionaire Mikhail Fridman’s Altimo cashed out of MegaFon.

Sales Dwindle

Altimo sold its 25 percent stake in MegaFon for almost $4
billion in cash, valuing the company at $15.9 billion, according
to data compiled by Bloomberg and based on TeliaSonera’s
statement. The company also paid $5.2 billion in dividends in
April as Fridman exited and Usmanov gained control of the
operator.

Morgan Stanley and Russia’s OAO Sberbank CIB are managing
MegaFon’s share sale, with help from Credit Suisse Group AG,
Citigroup Inc. and VTB Capital, the company said.

Initial share sales in Europe, the Middle East and Africa
have raised $8 billion this year, compared with $37 billion in
the same period last year, data compiled by Bloomberg show.

Telefonica SA said today it will sell as much as a 23.17
percent stake in its German unit, Telefonica Deutschland Holding
AG, at 5.25 euros to 6.50 euros apiece. At the high end of the
range, Spain’s former phone monopoly may raise 1.68 billion
euros ($2.2 billion) from the IPO. Madrid-based Telefonica had
more than 58 billion euros in net debt at the end of June.